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The Sharing Economy: Embracing Change with Caution

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The Sharing Economy has been the subject of considerable interest among policy makers across the globe. This book begins by developing a pragmatic definition of the Sharing Economy. Next, we describe global Sharing Economy trends, followed by an examination of the Sharing Economy in Sweden. Subsequent sections address regulatory considerations and potential economic implications. The book then concludes with a discussion of possible policy responses.

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The Sharing Economy: Embracing Change with Caution

  1. 1. I Sharing Economy - Embracing change with caution uppmärksammas att digita- liseringen utgör den möjliggörande teknologiska kraften för delningsekonomin. Innovation på området innebär att identifiera outnyttjade varor och tjänster, maxi- mera resursutnyttjandet samt att föra samman utbud och efterfrågan. Författarna noterar att Sverige, i förhållande till andra ekonomier, ligger steget före vad gäller specialisering i kunskapsekonomin men att mer skulle kunna göras för att under- lätta fortsatt tillväxt inom detta område. Bland policyrekommendationerna nämns bl a behovet att främja flexibilitet både på arbetsmarknaden och inom utbild- ningsystemet och att underlätta för företagande och innovation. Rapporten är författad av Claire Ingram och Robin Teigland, doktorand respektive docent vid Handelshögskolan i Stockholm samt Anna Felländer, chefsekonom Swedbank. W W W . E N T R E P R E N O R S K A P S F O R U M . S E N Ä R I N G S P O L I T I S K T F O R U M R A P P O R T # 1 1 NÄRINGSPOLITISKTFORUMRAPPORT#11 SHARING ECONOMY EMBRACING CHANGE WITH CAUTION ”A cornerstone for a successful democracy is equality before the law (Justitia is blind). If rules apply differently to different people the system will start to crumble. A fundamental challenge is to find ways to integrate the sharing economy into the formal economy or to radically change taxation so that sharing is equated with trade and commerce and labor with financial returns. Erika Åslund Lawyer and partner Cederqvist ”A significant piece of work - thoughtful and insightful - that raises crucial questions for governments, corporations and society at large. Noreena Hertz CEO & Co-Founder Generation K and Professor, University College London ”Sharing economy- embracing schange with caution is a comprehensive overview of where Sweden currently stand in an international comparison and it also the first at- tempt to draw policy implications in an area that constantly changes. In my view inno- vation, entrepreneurs and private equity is what will make the sharing economy grow. Sweden has the potential but must nurture the opportunity. Elisabeth Thand Ringqvist Chairman Swedish Private Equity & Venture Capital Association ”Taking up slack is tremendously important to making cities smarter and more people- friendly. Most major metros have far too many parking spaces, for instance. Get parked cars off the streets, guide drivers to available parking faster and share spaces that aren’t being used at various times. Reel in this slack and you’ll free up lots of space for other kinds of human activity! Billy McCormac President of the Stockholm Property Association ANNA FELLÄNDER CLAIRE INGRAM ROBIN TEIGLAND
  2. 2. THE SHARING ECONOMY EMBRACING CHANGE WITH CAUTION Anna Felländer Claire Ingram Robin Teigland
  3. 3. © Entreprenörskapsforum, 2015 ISBN: 978-91-89301-75-7 Författare: Anna Felländer, Claire Ingram och Robin Teigland Grafisk produktion: Klas Håkansson, Entreprenörskapsforum Omslagsfoto: IStockphoto Tryck: Örebro universitet ENTREPRENÖRSKAPSFORUM Entreprenörskapsforum är en oberoende stiftelse och den ledande nätverksor- ganisationen för att initiera och kommunicera policyrelevant forskning om entre- prenörskap, innovationer och småföretag. Stiftelsens verksamhet finansieras med såväl offentliga medel som av privata forskningsstiftelser, näringslivs- och andra intresseorganisationer, företag och enskilda filantroper. Författarna svarar själva för problemformulering, val av analysmodell och slutsatser i rapporten. För mer information se www.entreprenorskapsforum.se NÄRINGSPOLITISKT FORUMS STYRGRUPP Per Adolfsson, Bisnode (ordförande) Enrico Deiaco, Tillväxtanalys Anna Felländer, Swedbank Stefan Fölster, Reforminstitutet Peter Holmstedt, RISE Hans Peter Larsson, PwC Jonas Milton, Almega Annika Rickne, KTH Elisabeth Thand Ringqvist, SVCA TIDIGARE UTGIVNA RAPPORTER FRÅN NÄRINGSPOLITISKT FORUM #1 Vad är entreprenöriella universitet och ”best practice”? – Lars Bengtsson #2 The current state of the venture capital industry – Anna Söderblom #3 Hur skapas förutsättningar för tillväxt i näringslivet? – Gustav Martinsson #4 Innovationskraft, regioner och kluster – Örjan Sölvell och Göran Lindqvist, medverkan av Mats Williams #5 Cloud Computing - Challenges and Opportunities for Swedish Entrpreneurs – Åke Edlund #6 3D printing – Economic and Public Policy Implications – Maureen Kilkenny #7 Patentboxar som indirekt FoU-stöd – Roger Svensson #8 Byggmarknadens regleringar – Åke E. Anderssson och David Emanuel Andersson #9 Sources of capital for innovative startup firms – Anna Söderblom och Mikael Samuelsson #10 Innovation utan entreprenörskap? – Johan P Larsson
  4. 4. FÖRORD Näringspolitiskt forum är Entreprenörskapsforums mötesplats med fokus på förut- sättningar för det svenska näringslivets utveckling och för svensk ekonomis långsiktigt uthålliga tillväxt. Ambitionen är att föra fram policyrelevant forskning till beslutsfat- tare inom såväl politiken som inom privat och offentlig sektor. De rapporter som presenteras och de rekommendationer som förs fram inom ramen för Näringspolitiskt forum ska vara förankrade i vetenskaplig forskning. Förhoppningen är att rapporterna också ska initiera och bidra till en allmän diskussion och debatt kring de frågor som analyseras. Delningsekonomi eller Sharing Economy och collaborative economy är samlings- namn på aktiviteter som minskar resursåtgången genom att effektivare utnyttja varor och tjänster genom delning. Allt fler hakar på trenden att gå från att själva äga eller kunna allt till att hyra ut och låna både saker och kompetens. T ex låter Airbnb privatpersoner hyra bostäder av varandra vilket har gjort succé över hela världen. I The Sharing Economy - Embracing change with caution uppmärksammas att digi- taliseringen utgör den möjliggörande teknologiska kraften för delningsekonomin. Innovation på området innebär att identifiera outnyttjade varor och tjänster, maxi- mera resursutnyttjandet samt att föra samman utbud och efterfrågan. Författarna noterar att Sverige, i förhållande till andra ekonomier, ligger steget före vad gäller specialisering i kunskapsekonomin men att mer skulle kunna göras för att underlätta fortsatt tillväxt inom detta område. Bland policyrekommendationerna nämns bl a behovet att främja flexibilitet både på arbetsmarknaden och inom utbildningsyste- met och att underlätta för företagande och innovation. Rapporten är författad av Claire Ingram och Robin Teigland, doktorand respek- tive docent vid Handelshögskolan i Stockholm, samt Anna Felländer, chefsekonom Swedbank. Den analys samt de slutsatser och förslag som presenteras i rapporten delas inte nödvändigtvis av Entreprenörskapsforum, författarna svarar själva för dessa. Ekonomiskt stöd har bl a erhållits från Tillväxtverket. Stockholm i juni 2015 Johan Eklund Vd och professor Entreprenörskapsforum
  5. 5. FÖRORD 3 EXECUTIVE SUMMARY 7 Acknowledgements 9 1. INTRODUCTION 11 2. WHAT IS THE SHARING ECONOMY? 13 What are the Drivers of the Sharing Economy? 13 What Does the Sharing Economy Mean in Economic Terms? 18 Our Definition of the Sharing Economy 19 3. THE GLOBAL SHARING ECONOMY 21 Tangible Assets 21 Sharing Cars 21 Sharing Rooms and Land 23 Intangible Assets 24 Sharing Money 24 Sharing Time 26 Information and Influence 27 4. THE SHARING ECONOMY IN SWEDEN 29 Tangible Assets 30 Sharing Cars 30 Sharing Rooms and Land 32 Sharing Small Consumables 34 Clothing 34 Tools 35 Used Goods 35 Bikes 36 Intangible Assets 36 Sharing Money 36 Sharing Time 36 TABLE OF CONTENTS
  6. 6. 5. REGULATORY CONSIDERATIONS 39 Employment Regulation 39 Regulation of Production and Commerce 40 6. MIXED ECONOMIC IMPLICATIONS 43 New Pricing Mechanisms Push Inflation Downward 43 Lower Demand for Capital in the “Zero Marginal Cost Society”? 45 Competition 47 Labor Productivity and a Labor Market under Transition 47 Leading to Increased Inequality? 49 7. SWEDEN AHEAD, BUT CHALLENGES REMAIN 51 Some Possibilities: Scenarios for 2020 52 Scenario: Business as Usual 54 Scenario: Shadow Economy 54 Scenario: Freelance Economy 55 Scenario: Internet of Space 56 8. POLICY CONSIDERATIONS 59 Flexible Regulation Using “Trial and Error” 59 Facilitation of Entrepreneurship 60 The Government’s Involvement in the Sharing Economy 61 Labor Market Flexibility, Education and Challenges for General Statistics 62 Housing and the Gains from Dynamic Clusters 63 9. CONCLUSION 65 APPENDIX ONE: FURTHER READING 66 APPENDIX TWO: EFFECTS ON THE FINANCE INDUSTRY 66 Policy Implications for Sweden’s Central Bank (Riksbanken) 67
  7. 7. 6  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION
  8. 8. ENTREPRENÖRSKAPSFORUM  7 EXECUTIVE SUMMARY The Sharing Economy has been the subject of considerable interest among policy makers across the globe. This report begins by developing a pragmatic definition of the Sharing Economy. Next, the report describes global Sharing Economy trends, fol- lowed by an examination of the Sharing Economy in Sweden. Subsequent sections address regulatory considerations and potential economic implications. The report concludes with a discussion of possible policy responses. Defining the Sharing Economy. Driven by digitalization, the Sharing Economy involves the peer-to-peer exchange of tangible and intangible slack (or potential slack) resour- ces, including information, in both global and local contexts. This mediated exchange tends to reduce transaction costs for users by replacing third-party intermediaries with digital platforms. However, the elimination of third-party intermediaries means that risks are often borne by the providers and consumers of resources rather than by a central actor. The Global Sharing Economy. Trends in tangible assets include the rise of household names such as Airbnb and Uber. These house- and car-sharing services have provided income for many unemployed and under-employed individuals by allowing them to utilize resources that were previously idle. However, there has been push-back from users and regulators in various countries, due primarily to concerns about safety, unfair competition and the poor treatment of workers. Trends in intangible assets largely relate to the sharing of money through the several types of so-called crowdfunding platforms: donation- or reward-based crowdfunding, equity-based crowdfunding and debt-based crowdfunding, also known as Peer-to-peer (P2P) lending. Although these platforms have become an important source of philanthropic and entrepreneurial finance, they are subject to incompatible regulations in different parts of the world. Sharing time and information have been received less controversially but are nonethe- less important drivers of the Sharing Economy because they help users screen other users based on reviews and other information.
  9. 9. 8  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 1  EXECUTIVE SUMMARY TheSharingEconomyinSweden.ComparedtootherareasofEuropeandtoelsewhere in the world, Sweden’s Sharing Economy is less developed in certain areas but more developed in others. Notably, in Sweden, public actors have been more involved in the Sharing Economy, encouraging the use of sharing ideas for public spaces. Trends in tangible assets shared in Sweden have been dominated by global players such as Airbnb and Uber; however, local actors have reacted by developing digital platforms of their own. For example, a large number of firms have aided in the sharing of second-hand clothing, tools and used goods, and numerous cities have introduced bike-sharing arrangements. Intangible assets, such as money, are also being shared through Swedish and international crowdfunding platforms, and the Swedish platform, FundedByMe, has become a major European player in this field. Regulatory Considerations. Employment regulations present complicated issues for the Sharing Economy. On the one hand, many platforms argue that they are mere matchmakers, connecting buyers with sellers, and these platforms do not provide users with any form of employment security. On the other hand, some platforms set the terms of the agreement; for example, Uber establishes its drivers’ rates, and TaskRabbit requires that freelancers on its site reply to a request within several hours of receiving it. The line between employee and self-employed contractor is therefore blurred. Regulations regarding production and commerce may also need to be approached creatively to protect parties to Sharing Economy contracts and the public interest. In addition, questions regarding value-added taxes (VAT) should be clarified by govern- ment actors. Other key concerns that are considered inadequately addressed by cur- rent platforms include safety, privacy, intellectual property and ownership. Moreover, risk, which is typically borne by a firm, is transferred to the users on one or both sides of a platform. The Sharing Economy will have mixed economic implications. New pricing mecha- nisms will push inflation downward as  transaction and marginal costs are redu- ced.  Additionally, transparency, an increased matching of supply and demand, and the cutting out of middlemen through digital platforms will further drive prices down – and with them, inflation. Lower demand for capital is another possible outcome in the Sharing Economy as both idle and existing recourses will be used more efficiently.  Competition is likely to increase both between Sharing Economy firms and traditio- nal firms and among Sharing firms, in turn driving down prices. However, the network effects of many services being on a single platform may also decrease competition as this drives out competitors. Labor market transition is a likely consequence of the Sharing Economy; one which we are already seeing today. While it creates efficiencies and improves productivity for some, it will likely decrease productivity for others. Studies predict that 36-60 percent of
  10. 10. ENTREPRENÖRSKAPSFORUM  9 the jobs in Sweden will be lost due to digitalization and robotization, but it is also likely that, as in the past, new jobs in new fields will be created. An important amount of new jobs will be created in the Sharing Economy. Nevertheless, disparities in productivity are likely to exacerbate income inequality among workers. Sweden is ahead, but challenges remain as Sweden has both relatively high levels of employment specialized in IT and communications and a number of well-developed entrepreneurial clusters. However, specialized industries in Sweden that employ a large number of people, such as Transportation, Construction and Metal Manufacturing, are likely to be hit hard by increases in digitalization and automation as well as by the Sharing Economy cutting out traditional middlemen. Scenarios for 2020 include numerous possibilities that depend on the pace of technological adoption and development and on the rate of global economic growth. High technological growth could lead either to a freelance economy or to a so-called “Internet of Space,” depending on whether the corresponding economic growth is low or high. In the same vein, low technological growth may lead either to the creation of a shadow economy (where there is low economic growth) or to “business as usual” (where there is high economic growth). Policy Considerations. Relative to other economies, Sweden is ahead of the curve in knowledge economy specialization. We recommend a path that balances growth of the Sharing Economy with labor interests. To this end, we recommend discussions regarding 1) the development of flexible regulatory schemes, 2) the facilitation of entrepreneurship and innovation, 3) engaging government involvement, 4) promoting labor market flexibility and education, and 5) the elimination of bottlenecks in the housing market. Conclusion. The Sharing Economy presents a number of interesting possibilities for the future of work, production, and collaboration in Sweden. Although Sweden is in an excellent position to benefit from the growth of the Sharing Economy, the country could do more to facilitate further growth in this area. Acknowledgements. We would like to thank Michel Elmoznino Laufer, Åsa Minoz, Sara Modig, Arun Sundarajan, and Karl Wennberg for their helpful comments and insights. We would also like to thank Entreprenörskapsforum for their interest in this topic and all of the members of the forum for their enthusiasm and insights.
  11. 11. 10  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION
  12. 12. ENTREPRENÖRSKAPSFORUM  11 Chapter 1 INTRODUCTION When one thinks of the Sharing Economy, one typically thinks of the global “ride- sharing” application, Uber, or the house-sharing platform, Airbnb. These companies are just some of the global firms that have been built on the premise that a consumer’s underused or spare fixed assets can be shared—a business model that is currently worth USD 26 billion globally1 and is predicted to grow to USD 335 billion by 20252 . Other business models, such as that of the task-sharing site TaskRunner, allow individu- als to “share” their skills and office hours. Still other models allow individuals to share their spare cash; rather than holding it in a zero-interest bank account, they can lend it to other individuals (e.g., Sweden’s Trustbuddy) or firms (e.g., ToBorrow, FundedByMe) in what has variously been called crowdfunding or peer-to-peer lending. Although many of these services are provided by startup firms that have received phenomenal market valuations (such as Uber, with a USD 41 billion valuation), incumbent firms (including Avis, DHL, Banco Santander, and Marriott Hotels) have also developed their own Sharing Economy services. Together with the Internet and mobile phones, the evolution of the Sharing Economy has led to increased digitalization; the more efficient sharing of goods, services and information; and faster and more effective internationalization among new firms due to reduced transaction costs. Indeed, many argue that the Sharing Economy is a “social revolution” because it is leading to the transfer of power from a few large firms to a multitude of loosely connected actors. Although statistics are unavailable for Sweden, it is estimated that the Sharing Economy is growing beyond a mere niche economy. For example, in the UK, approximately 25 percent of the population has participated in this 1. Botsman, R., & Rogers, R. (2011). What’s mine is yours: how collaborative consumption is changing the way we live. London: Collins. 2. http://www.pwc.co.uk/issues/megatrends/collisions/sharingeconomy/the-sharing-economy-sizing-the- revenue-opportunity.jhtml
  13. 13. 12  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 1  INTRODUCTION economy during the past 12 months3 , and a recent study in the US suggests that sharers are not only tech-savvy urban hipsters but also affluent homeowners with children.4 Although the sharing of slack resources leads to the more efficient use of those resources, the reality is likely to be more complicated, and there is reason to exercise caution with regard to the Sharing Economy. In the short run, both Airbnb and Uber have come under scrutiny because of the effects that their business models have had on their respective industries and because of concerns that they are avoiding certain safety regulations and taxes. In particular, Uber has been under fire for moving the burden of risk away from the firm and onto the “consumer” and “employee”. Indeed, when financial resources are shared, the risk of an individual transaction is not shared only by the parties to the contract; rather, collaborative finance also entails a certain amount of risk sharing, or pooling. Thus, one area of concern is the degree to which Sharing Economy firms avoid transaction costs and risks by pushing such costs and risks onto providers and consu- mers. Furthermore, scholars and media commentators have questioned the effects of these startups on the workforce, arguing that they are both a symptom and a cause of unemployment and underemployment. A Guardian op-ed piece states as follows: “One big problem with claims that the ”Sharing Economy” can lead the way out of our economic morass is that proponents often advocate less consumption. How can that be a solution for an economy that—for better or worse—is fueled by consumer spending? ... Certainly not the one that could employ significant numbers of people as designers, sales clerks, warehouse staff and construction workers and help bring four million long-term unemployed people [in the UK] back into the workforce.” 5 Thus, although it holds much promise, the emergence of this new “economy” does not clearly directly create jobs. However, insofar as the Sharing Economy makes the use of slack resources more efficient, it has been well received. Regarding regulatory issues, the Sharing Economy may lead to significant legislative challenges because although regulations may obstruct potential new applications and markets, they may nonetheless be necessary to curb abuse of market power as new actors emerge. The development of new regulations should not be taken lightly; more traditional actors are likely to lobby in favor of the status quo, and even the most well-intentioned regu- lations may indirectly stifle growth of this nascent field. This report investigates the following areas: 1) the global development of the Sharing Economy; 2) current trends in the Sharing Economy in the Swedish context; 3) the possible expansion of the Sharing Economy in Sweden; and economic and social implications for Sweden. In addition, this report opens a discussion on policymaking. 3. http://www.nesta.org.uk/publications/making-sense-uk-collaborative-economy 4. http://www.slideshare.net/jeremiah_owyang/sharingnewbuying?ref=http://www.web-strategist.com/ blog/2014/03/03/report-sharing-is-the-new-buying-winning-in-the-collaborative-economy/ 5. http://www.theguardian.com/commentisfree/2014/jan/07/sharing-economy-not-solution-to-jobs-crisis
  14. 14. ENTREPRENÖRSKAPSFORUM  13 Chapter 2 WHAT IS THE SHARING ECONOMY? The Sharing Economy is a broad concept that lacks a common definition, and it is often used interchangeably with such terms as “collaborative economy” and “on demand” economy. Rachel Botsman, the author of What’s Mine is Yours: How Collaborative Consumption is Changing the Way We Live, defines the collaborative economy as “a system that activates the untapped value of all kinds of assets through models and marketplaces that enable greater efficiency and access”.6 In line with this definition, the Sharing Economy has been defined to include the renting, bartering, loaning, gifting, and swapping of assets that are typically underuti- lized, either because they are lying unused or because they have not yet been mone- tized. Such assets include a wide variety of tangible and intangible assets (Table 1). For instance, archetypes such as Airbnb and Uber involve the sharing of tangible slack resources, namely, cars and homes, whereas crowdfunding and peer-to-peer finance involve the sharing of a somewhat more intangible resource: money. Finally, services such as TaskRabbit connect people with free time to people who need small tasks performed. What are the Drivers of the Sharing Economy? The sharing of assets has always been a part of social organizing. However, over the past decade, several drivers have led to increased Sharing Economy activity and to a number of startups that promote this behavior. 6. https://archive.harvardbusiness.org/cla/web/pl/product.seam?c=34760&i=34762&cs=902b9545bb85f0aba 03d8b645fb1d7c5
  15. 15. 14  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 2  WHAT IS THE SHARING ECONOMY? TABLE 1. Overview of assets and well-known actors in the Sharing Economy • Increasing penetration of the Internet and smartphones. Although there are seve- ral drivers of the Sharing Economy, the Internet and smart phones are the major accelerants. Indeed, Internet penetration across the globe has risen considerably over the last two decades, from 16 million people, or approximately 0.4 percent of the world’s population, in 1995 to an estimated 3 billion, or 42 percent of the global population, in 2014 (Internet World Statistics, 2015). In addition, data collected by Google between 2011 and 2013 demonstrate the remarkable regional increases in smartphone penetration during this period (see Figure 1), and Internet penetration has no doubt increased even further since 2013. FIGURE 1. Smartphone Penetration, 2011-2013 Source: Google Asset Example Actor: International Actor: Swedish Tangible Transportation Property Food Uber Lyft Car2Go Airbnb DeskNearMe EatWith Uber Car2Go Airbnb Hoffice Intangible: Financial Crowdfunding P2P lending Kickstarter Indiegogo LendingClub Prosper FundedByMe Kickstarter Crowdcube Toborrow Intangible: Services Professional Personal Innocentive oDesk TaskRabbit eWork Vint TaskRunner MyWays USA UK Sweden South Africa Poland Norway India Germany Finland China 0 10 20 30 2013 2012 2011 40 50 60 70 80
  16. 16. ENTREPRENÖRSKAPSFORUM  15 Although smartphone penetration is a more recent development, the data show a rapid increase in mobile data use due to smartphones (Figure 2). FIGURE 2. Average per capita monthly mobile data use 2008-2013. Source: IHS / Industry data / Ofcom • Technological advancements in areas such as information technology platforms and big data analytics. Although the sharing of assets is nothing new, the creation of two-sided, or matchmaking, market platforms that enable peer-to- peer communication (i.e., individual-to-individual rather than firm-to-individual communication) is a novel development. This communication can be mediated either by firms, such as Uber, that run their own platforms or by individuals who use existing social networking sites, such as Facebook, or design their own apps, using open source software, to self-organize their sharing activity in the cloud. These platforms can connect individuals locally, on a face-to-face basis, or they may be global, connecting people from all over the world digitally. Thus, they are more likely to enable a critical mass of suppliers and consumers such that both sides of the market feel that there is enough demand or choice available, which previously was a much more difficult task. Furthermore, several startups are using big data analytics to match supply and demand and even using advanced algorithms to set prices and predict demand. For example, Uber uses its vast stores of data to predict where and at what time a customer will want a cab as well as to raise prices when demand is excessively high. • Falling entry barriers. Digitalization has created an increased democratization of entrepreneurship and innovation by reducing entry barriers for app creators and digital platform providers. It is estimated that the number of people working in app creation and marketing in the EU will increase from 1.8 million in 2013 to 5 year CAGR 1 year change 53% 71% 118% 42% 33% 37% 100% 68% 40% 62% 80% 72% 105% 70% 70% 89% 89% 88% 65% 118% SWE JPN USA AUS ITA NED GER UK SEP FRA 2500 2000 1500 1000 500 0 2008 2009 2010 2011 2012 2013
  17. 17. 16  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 2  WHAT IS THE SHARING ECONOMY? 4.8 million in 2018.7 Moreover, individuals and firms are taking advantage of this trend; in addition to EUR 6 billion in app sales and in-app spending, EU developers earned EUR 11.5 billion in contract labor by developing and maintaining apps to support non-app firms, such as financial services and retail firms.8 The costs and risks of starting an IT firm are significantly lower today than at the beginning of the millennium because the costs of producing, distributing and marketing software and hardware have declined due to the availability of platforms such as Facebook, YouTube and Twitter.9 The cost of platform innovation is also low relative to that of traditional innovation because platform innovators can assemble various existing plug-n-play components to create new platforms. Furthermore, open source solutions and cloud services can help to keep development costs down. Thus, entry barriers to the Sharing Economy are relatively low because individuals can easily and cheaply create a Sharing Economy service or platform. • Increased ease of financial transactions. Financial transactions—both over the Internet and directly between individuals—have been greatly facilitated due to advancements in digital payment solutions, such as Swish, Klarna, and iZettle, combined with people’s increasingly positive attitudes toward online payments, which contrast greatly with the negative, risk-averse attitudes toward online payments in the late 1990s. • Increased transparency. Sharing Economy platforms provide transparency regarding the buyer, seller, and product and therefore have assumed the role of the “trusted third party” that previously was played by various middlemen and organizations, both locally and globally. Social media and social networking sites provide information about individuals, and the rating systems used by many of these services allow suppliers and consumers to assign ratings to one another, even in real time. These systems and the accompanying transparency can encourage openness and trust among strangers, e.g., between the person renting out his or her house and the complete stranger from across the globe who rents the house, which may lead to increased generalized reciprocity and self-regulation. • The financial crisis. It is not surprising that the financial crisis has been a driving factor of the Sharing Economy. Whereas the crisis has led many people to seek alternative sources of employment and income, the Sharing Economy enables individuals to make money on their tangible and intangible assets that previously sat idle. For example, a person can rent out his living room couch to a stranger 7. http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?doc_id=4485 8. http://ec.europa.eu/information_society/newsroom/cf/dae/document.cfm?doc_id=4485 9. Ries, E. 2011. The lean startup: How today’s entrepreneurs use continuous innovation to create radically successful businesses. Random House LLC.
  18. 18. ENTREPRENÖRSKAPSFORUM  17 from the other side of the globe, and he can even rent out his own free time to perform odd jobs, such as assembling furniture. • Declining consumption patterns. We are also seeing more negative consump- tion behaviors among individuals for a variety of reasons, including reduced disposable income, environmental and sustainability concerns, convenience, status, a desire for more social interaction, and a backlash against consumerism and major brands. Botsman and Rogers argue that individuals are realizing that owning a product that they will use for only a limited period makes less sense than merely having access to the product. These authors also argue that there is an increasing belief in the “commons” and that individuals who provide value to an Internet community find that their own value grows in return. The environ- mentalists’ view is that when goods are circulated, the life span of each indivi- dual item is maximized and extended. However, the term “Sharing Economy” could be misleading. A recent practitioner study of more than 90,000 individuals in the US, Canada, and the UK found that convenience was the number one reason why people participated in the Sharing Economy, outranking better price and product/service quality. Notably, sustainable lifestyle and a preference for access over ownership both ranked relatively low on this list.10 FIGURE 3. “How important were each of the following reasons for using a peer-to-peer site or app for your most recent sharing transaction?” (Asked Dec 2013-Jan 2014)11 10. http://www.slideshare.net/jeremiah_owyang/sharingnewbuying 11. Re-sharers buy and/or sell pre-owned goods online using well-established services like eBay and Craigslist whereas neo-sharers use emergent sharing services, such as Etsy, Kickstarter, Uber http://www.slideshare. net/jeremiah_owyang/sharingnewbuying CONVENIENCE BETTER PRICE PRODUCT / SERVICE QUALITY COULDN’T FIND ELSEWHERE RECOMMENDATION SUSTAINABLE LIFESTYLE CONNECTY ONLINE CURIOSITY CONNECT LOCALLY ACCESS OVER OWNERSHIP RE- SHARES NEO- SHARES OTHER 73% 55% 47% 40% 40% 30% 27% 26% 24% 13% 13% 13% 75% 60% 36% 26% 29% 27% 18% 17% 23% 6%
  19. 19. 18  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 2  WHAT IS THE SHARING ECONOMY? What Does the Sharing Economy Mean in Economic Terms? One of the primary aspects of the Sharing Economy is that technology plays a major role in driving down transaction costs. Firms such as Airbnb and Uber have not crea- ted some radical new means to satisfy consumers; rather, these firms merely provide information that makes it much easier for people to find what they are looking for or to do what they want to do anywhere across the globe, i.e., they lower transaction costs. Approximately 80 years ago, a young economics professor named Ronald Coase presented his views on why firms exist in a paper titled “The Nature of the Firm”, thereby laying the groundwork for the concept of transaction costs.12 He questioned why all transactions did not occur in the marketplace and argued that firms arose to minimize transaction costs in a world of imperfect information. Transaction costs include search and information costs, bargaining costs, and policing and enforcement costs. Search and information costs correspond to the time spent by the consumer to search for a good or for information about a good on the market. The more time it takes to search for a good, the greater the search and information costs. Bargaining costs are the costs involved in preparing a contract and reaching an agreement with the other party to the transaction. Finally, policing and enforcement costs comprise the costs of ensuring that the other party complies with the contract and of legal action if the other party fails to comply. In short, the lower the search and information costs, bargaining costs, and policing and enforcement costs are, the lower the transac- tion costs are. Digitalization has decreased transaction costs, particularly the costs associated with search and information. For example, the search and information costs for an online bookstore, such as Amazon, are lower than those for a physical bookstore because Amazon consumers can search for books online or even obtain algorithm-based recom- mendations instead of taking the time to go to a physical bookstore and searching manually. The decrease in transaction costs in the Sharing Economy is perhaps even more significant. Whereas Amazon is a digital alternative to a physical bookstore that maintains a centralized non-digital collection of books, there are often no non-digital centralized equivalents to Sharing Economy platforms. For instance, a person seeking to share an empty room in a home or an empty piece of arable land previously had to search for these slack resources using ad hoc advertising and word of mouth, both of which are clearly far more time consuming than a digital matchmaking tool. Bargaining costs are the costs associated with establishing a price for a particular good or service. Because different goods have different norms in terms of how they are traded, it is difficult to predict how bargaining costs may be affected by the Sharing Economy. Indeed, different platforms that trade in different slack resources may have different price-setting mechanisms. Whereas purchasers of smaller goods have traditionally been price takers,13 purchasers of larger goods are typically better able to negotiate prices and may even act as price setters when there is a large amount 12. http://www3.nccu.edu.tw/~jsfeng/CPEC11.pdf 13. Wen, M. (2004). E-commerce, productivity, and fluctuation. Journal of Economic Behavior & Organization, 55(2), 187-206.
  20. 20. ENTREPRENÖRSKAPSFORUM  19 of supply on the market. The explanation for this phenomenon is that when there is a large amount of supply but demand remains constant, the individual demanding the good has considerable bargaining power. This power should decrease not only the cost of bargaining but also the cost of the good itself. Thus, an abundance of a particular good or service on the market creates a situation in which the purchaser has considerable bargaining power and can drive prices down; when there are many purchasers in this situation, the average market price for a good or service is driven downward. Accordingly, not only is the manner of consumption changing, but the cost of consumption is changing as well. Policing and enforcement costs are the costs to monitor an ongoing transaction and to ensure that the other party is keeping to its side of the bargain. Typically, in straightforward and small transactions, such policing and enforcement costs are low; however, these costs increase with the size and complexity of a transaction and thus also vary by sector. Monitoring costs typically decrease as the amount of information available to transaction parties increases; rating systems and user reviews there- fore form an invaluable source of information for prospective transaction partners. Enforcement costs increase proportionally to the complexity of the transaction; thus, although electronic payment systems often decrease enforcement costs, the fact that many Sharing Economy transactions are conducted through forms that are relatively unknown or poorly understood in legal terms is likely to increase enforcement costs, at least during the Sharing Economy’s nascent years. Creative destruction, a term coined by economist Joseph Schumpeter in 1942,14 refers to the process whereby the creation of a new industry or method of doing things destroys the industry or process that preceded it. Although creative destruc- tion is evident in obviously comparable industries (for example, the replacement of tapes by CDs and DVDs), this process is less obvious in the Sharing Economy, primarily because it is not clear which industries and/or processes the Sharing Economy is likely to replace. Indeed, although incumbents in the hotel and taxi industries have been forced to innovate to survive, neither the industries nor their processes have been “destroyed” by the advent of sharing. Rather, older innovations have been connec- ted to digital services through social networks with, for example, a marketplace or “thing” (i.e., the Internet of Things, or IoT). Such novel elements bring greater benefits to users, which often leads to the destruction of old practices, but in this case will not necessarily lead to the destruction of old products and services. Thus, sharing occasionally serves as an alternative—and even a complement—to existing industries. Our Definition of the Sharing Economy The above discussion enables us to develop a working definition for the Sharing Economy (See Figure 4). Our definition overlaps considerably with that of Botsman but is more pragmatic for the purposes of this report: the Sharing Economy comprises the 14. Schumpeter, J. A. (2010). Capitalism, Socialism and Democracy. Routledge.
  21. 21. 20  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 2  WHAT IS THE SHARING ECONOMY? peer-to-peer exchange of tangible and intangible slack (or potentially slack) resources, including information, in both global and local contexts. This mediated exchange tends to reduce users’ transaction costs by replacing third party intermediaries with digital platforms; however, transactional risks are often borne by the providers and consu- mers of these resources rather than by a central actor. FIGURE 4. The definition of the Sharing Economy used in this report IntangibleTangible LocalGlobal Sharing Economy Information
  22. 22. ENTREPRENÖRSKAPSFORUM  21 Chapter 3 THE GLOBAL SHARING ECONOMY Below, we discuss the areas in which the Sharing Economy has thus far had the grea- test influence on the sharing of tangible and intangible assets and provide examples of Sharing Economy platforms in each area. This list is not meant to be exhaustive; rather, the intent is to give the reader some insight into the different services and how they function. Tangible Assets Sharing Cars Uber was founded in 2009 in San Francisco and today has a valuation of USD 41 billion and operates in 250 cities. Uber involves the sharing of rides, or cars; people who own cars are connected to people who want a ride somewhere via the Uber mobile applica- tion that is installed on the phones of both riders and drivers. The phone, in turn, relies on the open access maps created by Google as well as its own GPS technology to connect ride purchasers with the nearest available ride (Figure 5). Once the ride is over, the rider’s credit card on file with Uber is automatically charged for the ride and thus the driver does not need to handle any payments. After the ride, riders and drivers rate each other. According to recent figures from the New York City Taxi and Limousine Commission, Uber cars now comprise the majority of taxis in New York City. Specifically, these data indicate that there are currently 14,088 Uber cars in New York City, compared with 13,587 yellow cabs.15 15. http://www.unt.se/ekonomi/uber-har-tagit-over-new-york-3647082.aspx
  23. 23. 22  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 3  THE GLOBAL SHARING ECONOMY FIGURE 5. Uber screenshot Uber first offered its services to off-duty taxi drivers who had licenses to operate taxi- like services before expanding to include individuals who did not have taxi licenses but did have cars. This helped Uber to price discriminate; not only would the company provide a taxi-like service to those who might otherwise pay the same price for an ordinary taxi, but it would also provide a less expensive service that catered to a mar- ket that was unwilling to pay the same high price for the same service. The general logic behind price discrimination is that the ability to distinguish between those willing to pay different prices enables one to tap a larger market, which in turn generates larger profits, higher welfare and a reduction in deadweight loss. Furthermore, in expanding its business model to include ridesharing, the firm relied on the notion that the expanded “ridesharing” model was sufficiently different from a taxi service to render the laws regulating taxis in various jurisdictions inapplicable. Unsurprisingly, many incumbent taxi firms disagreed. Moreover, among the cases that have been litigated, several courts have interpreted the existing laws in a manner unfavorable to Uber’s ride sharing model. In addition, there has been a public outcry, particularly in the United States, over Uber’s treatment of the ride providers. Because Uber provides only a mobile plat- form, the company’s position is that it does not employ anyone; rather, Uber merely connects willing purchasers of rides with willing sellers. As many commentators have noted, Uber’s model raises questions about the applicability of labor regulations and competition laws; Uber argues that it facilitates exchanges between purchasers and individual drivers who are not employees of Uber but rather are self-employed inde- pendent contractors. However, the line between employee and independent contrac- tor is unclear, especially when one considers the fact that Uber centrally establishes standards of service, prices and other conditions for its ride providers.
  24. 24. ENTREPRENÖRSKAPSFORUM  23 Uber sees itself as a technology firm rather than a transportation firm because its success is based on a simple user interface and an advanced information system that conducts big data analytics. The firm is currently moving into other areas, such as food delivery; it recently started delivering pizzas in Barcelona. Sharing Rooms and Land Founded in 2008, Airbnb currently boasts over one million listings—including 600 castles—in 34,000 cities in 190 countries across the globe. Its operating model is to act as an intermediary between those who have empty rooms or apartments and those who would like to rent them. For this service, Airbnb charges a fee of six to twelve percent of the rental amount, which is set by the owner of the room or apartment. Airbnb verifies hosts’ and renters’ identities but does no further screening. Instead, it relies on reviews by parties to previous Airbnb transactions to act as a quality control and to give future participants information upon which to base their decisions. Airbnb’s apparent intention is to act as a central pooling area where renters and owners can meet. By relying on reviews by verified customers, Airbnb avoids the costly process of screening individual apartments and users and instead only verifies users’ identities. This peer-to-peer exchange of information is vital for Airbnb insofar as it both lowers the company’s operating costs and operates as a screening device. Indeed, the review system has engendered self-regulation among Airbnb’s users. Similar to the development of eBay, the development of Airbnb has fostered the creation of a new type of job. Specifically, there are now independent agents who earn fees by photographing and describing properties and creating Airbnb accounts for owners. Unlike Uber, Airbnb has not been accused of entering into employment relations- hips with the individuals who list properties on its platform; Airbnb does not centrally set prices and no service is implicit in its operating model. However, the firm has come under fire from hotel groups and governments across the globe, for several reasons. First, some cities, such as New York, have laws that prohibit owners or occupants from renting out their apartments for short periods (less than 30 days) unless they are also living on the premises.16 Second, many cities, including Amsterdam, Barcelona and Los Angeles, charge “tourist taxes”, which are typically included in the cost of renting a room in a hotel. Finally, hotels and other commercial rentals must comply with local safety laws, whereas owners that rent properties on Airbnb are not necessarily subject to these laws. For the most part, the problems and resistance that Airbnb has faced have been resolved amicably. For instance, in Amsterdam, tourist taxes are now included in Airbnb’s service charge and periodically transmitted to the relevant local authority. Airbnb also periodically sends hosts links and information regarding local regulations, 16. http://www.nytimes.com/2012/12/01/your-money/a-warning-for-airbnb-hosts-who-may-be-breaking-the- law.html?_r=0
  25. 25. 24  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 3  THE GLOBAL SHARING ECONOMY although compliance with these local regulations—including safety regulations— remains the responsibility of the host.17 Landshare operates on a principle similar to that of Airbnb but facilitates the sharing of unused arable land in the UK, Canada, and Australia. The Landshare platform allows those who are looking for land, those who have land to lease and “helpers” to upload details of their ideal transactions and to connect with one another. The site operates a map on which users can pinpoint their location, along with a description of what they are seeking. Unlike Airbnb and Uber, Landshare encourages people to enter into explicit agre- ements outside of the platform. Whereas the terms and conditions of the more typical home- and car-sharing transactions are fairly standardized, it appears that Landshare anticipates that the transactions conducted on its platform will vary so widely that the users must develop and enter into contracts themselves. Although Landshare provides a pro forma agreement that users can adapt to their own specific purposes, it offers no legal advice. In addition, also unlike Airbnb and Uber, Landshare performs no scre- ening process; it does not check the identity of the parties to the transaction and does not verify ownership of or usage rights to the land involved. In addition, there is little talk of remuneration online, which suggests that discussions regarding remuneration occur offline. Because Landshare does not participate in the transaction, the service provided by Landshare is much closer to an intermediary service than the services provided by Airbnb and Uber. However, Landshare does not charge its users any form of operating fee. Rather, Landshare essentially operates to ensure that slack resources are used and does not provide an alternative source of employment to its users, unlike Airbnb and Uber. Therefore, although Landshare is clearly an example of the Sharing Economy insofar as it involves sharing and the creation of economic value, its role is somewhat dif- ferent—and, consequently, less problematic—than the roles played by Airbnb and Uber. Intangible Assets The sharing of slack resources is not reserved for tangible consumer and durable goods. On the contrary, the sharing of intangible resources—notably, money and information—has also grown enormously. This section discusses a number of major global trends in the sharing of intangible resources. Sharing Money Crowdfunding has been described as an open call made through the Internet to obtain financial contributions from a relatively large number of individuals with limited 17. http://www.iamsterdam.com/en/media-centre/city-hall/press-releases/2014-press-room/amsterdam- airbnb-agreement
  26. 26. ENTREPRENÖRSKAPSFORUM  25 involvement of standard financial intermediaries.18 In 2014, crowdfunding expanded globally by 167 percent, raising USD 16.2 billion on 1250 platforms, compared with USD 6.1 billion in 2013. It is expected that the industry will double in size once again in 2015, generating USD 34.4 billion.19 The idea behind crowdfunding is that by appealing to a global community (the crowd), anyone who has access to the Internet may fund a new venture idea using slack resources. This concept is premised on the notions that the crowd can screen ideas at least as well as any professional investor and that the money of an individual investor may be better invested in a local project in which the investor believes than in an abstract mutual fund. There are four forms of crowdfunding.20 The first is donation-based crowdfunding, in which actors donate to a project and receive an intangible reward, such as a “thank you”, in return. The second form is reward-based crowdfunding, in which donations are made in exchange for a symbolic reward, e.g., a prototype or limited-release version of a service. Kickstarter and Indiegogo are among the most internationally well-known examples of platforms that provide this type of entrepreneurial match-making service. Neither Kickstarter nor Indiegogo screens the projects that are presented on their respective platforms; rather, they rely on the assumptions that project owners can link their projects to their Facebook accounts to provide legitimacy and that potential investors can ask questions publicly on these platforms. These features provide a form of transparency because would-be investors can screen potential projects using a combination of third-party verification and reviews, which makes both platforms self- regulating. Both Kickstarter and Indiegogo charge a percentage of the funds raised for a project to list on their respective sites. The third form of crowdfunding is equity-based crowdfunding, wherein individuals purchase equity shares in an organization via a digital crowdfunding platform, and those shares and shareholders are managed either by the platform or by the orga- nization in which shares are sold, depending on the platform and country in ques- tion. Crowdcube, a UK firm, is the best known equity-based crowdfunding platform. Crowdcube sells equity shares in unlisted firms and does both credit and criminal background checks on individuals who wish to list their businesses on Crowdcube’s platform. Peer-to-peer lending and micro loans are often described as the fourth form of crowdfunding. In this crowdfunding form, organizations or individuals borrow from investors through an online campaign and lenders’ commitments are ultimately repaid, usually with interest.21 Some of the most internationally well-known platforms for this type of crowdfunding are the US-based Prosper, which runs a for-profit model 18. Ingram, C., Teigland, R., & Vaast, E. (2014). Solving the puzzle of crowdfunding: Where technology affordances and institutional entrepreneurship collide. In System Sciences (HICSS), 2014 47th Hawaii International Conference on (pp. 4556-4567). IEEE. 19. http://www.crowdsourcing.org/editorial/global-crowdfunding-market-to-reach-344b-in-2015-predicts- massolutions-2015cf-industry-report/45376 20. Baeck, P., & Collins, L. (2013). Working the Crowd: A short guide to crowdfunding and how it can work for you. London: Nesta. 21. Baeck & Collins (supra)
  27. 27. 26  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 3  THE GLOBAL SHARING ECONOMY of peer-to-peer lending, and Kiva, which runs a near-philanthropic service that is aimed at providing loans to people in developing countries. All of these forms of crowdfunding operate within the Sharing Economy to ena- ble individuals to invest slack financial resources into projects in which they believe, whether through equity investments, donations or the pre-purchase of goods. Sharing Time TaskRabbit positions itself as facilitating an “old school concept: neighbors helping neighbors”. What this means in practice is that TaskRabbit helps people to find other people to perform small services, from running errands and moving furniture to trans- cribing interviews. The firm acts as a platform whereby service providers (“taskers” or runners) can post online profiles in which they advertise the tasks for which they are available and provide reviews from previous purchasers. Purchasers can then find appropriate runners based on the tasks advertised and the city in which both indivi- duals are based. TaskRabbit argues that it helps people find short-term employment, which in turn helps these people to pay bills that they would otherwise be unable to pay. However, in the words of Bloomberg, “TaskRabbit is betting on a future where employment will seem much more like a series of small-scale agreements between firms and labor than jobs in the traditional sense”.22 In such a future, secure jobs would not exist; there would be only a series of short-term agreements between individuals. This task-sharing site began as an auction- and negotiation-based platform, where individuals seeking runners to complete tasks could bid and negotiate online for that person’s time. However, in June 2014, the auction model was replaced by one in which those selling their time set an hourly rate. Bloggers and news articles described the modification as a move from the Ebay model to the Uber model, and there was considerable backlash from both taskers and service purchasers.23 This unhappiness stemmed from the removal of the bidding function as well as a number of other changes incorporated by the firm. For instance, the firm implemented an algorithm that automatically matched taskers with a purchaser based on information about the required task, including when and where it was needed. This algorithm provides the purchaser with a selection of three taskers with different hourly rates and experience levels and allows the purchaser to communicate with the chosen tasker via an in-app messaging service. Like Airbnb, TaskRabbit allows service providers to set their own hourly rate, which is publicized upfront, and the firm takes a 20 percent service fee, which includes insu- rance. Service providers’ profiles include reviews by purchasers, and TaskRabbit also conducts identity checks and in-person interviews before allowing a person to offer services on the platform. 22. http://www.bloomberg.com/bw/articles/2013-05-24/in-the-future-well-all-be-taskrabbits 23. See http://techcrunch.com/2014/07/10/taskrabbit-debuts-revamped-platform-launches-new-website- and-mobile-apps/
  28. 28. ENTREPRENÖRSKAPSFORUM  27 TaskRabbit was not subject to much controversy until it moved away from the auction model. Both taskers and purchasers were unhappy and argued that the new model did not allow people to manually search for taskers and that the algorithm only brought up taskers with consistently high review scores. Moreover, at the same time as the algorithm implementation, TaskRabbit focused on making it easier to connect to tas- kers who performed common tasks, such as house cleaning or furniture assembly, to the detriment of those who were searching for, and those who were providing, more unique niche offerings. Under both the new and old models, the risks and costs of transactions are absorbed by the service provider. For instance, the platform currently holds service providers responsible for adding VAT when required and for addressing their own tax issues. Although it might be unreasonable to hold TaskRabbit responsible for the tax issues of every service provider who uses its platform, many individuals offering services on TaskRabbit are paid a low wage for a short-term job that is typically menial in nature. Is moving the burden of tax compliance onto the small service provider too onerous, given that it requires service providers not only to specialize in and advertise their particular niche services but also to learn all of the ins and outs of their local tax regulations? Placing this substantial burden on a single individual seems not only unfair in some respects but also inefficient. Today, large firms employ individuals to conduct specialized tasks—and only those tasks—which frees those with other specialties to do the same, increasing overall productivity. What happens to worker productivity when the workers must divide their time between numerous tasks, many of which are outside their area of expertise? Time Banks, or time sharing, might be described as the philanthropic equivalent of TaskRabbit; that is, a time bank is a network of not-for-profit local nodes, wherein individuals in a community submit requests and offers for help. The premise is that a time bank is a community-building system and that no one charges for the help provided by him/her. Instead, individuals voluntarily help each other with childcare, elderly care and creative projects. Although this venture is clearly a component of the Sharing Economy, it is difficult to compare it with the previous examples because it does not provide new forms of employment. Information and Influence Information and knowledge are key to the operations of all of the above-described platforms because information and knowledge enable the users of a particular plat- form to self-regulate, which limits the amount of screening that must be performed by the firm running the platform. This fundamental part of the Sharing Economy—the reduction of transaction costs—is often used on its own to improve transaction deci- sions by consumers. Examples include the service-provider review service Yelp and the tourism review service Tripadvisor. Neither Yelp nor Tripadvisor provide any services themselves (although Tripadvisor has recently branched out into flight and hotel price aggregation), but rather they allow users to share a wealth of information that helps consumers to find the lowest price for an item and to screen goods and services.
  29. 29. 28  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 3  THE GLOBAL SHARING ECONOMY Klout is an example of a mobile app that can be used to share information about one’s social influence on the Internet. The app was launched in 2008 and uses data from multiple social networks, including Bing, Facebook, Foursquare, Google+, Instagram, LinkedIn, Twitter, and Wikipedia. The data are used to create Klout user profiles, and social media analytics are used to rank the users. Users are ranked according to their online social influence and assigned a “Klout Score” between 1 and 100. The higher the score is, the higher is the user’s ranking in breadth and strength of online social influence.
  30. 30. ENTREPRENÖRSKAPSFORUM  29 Chapter 4 THE SHARING ECONOMY IN SWEDEN The Sharing Economy seems to be growing at more or less the same pace in Sweden as in other European countries, with certain areas, such as finance, growing faster than others (e.g., crowdfunding). International names such as Uber, Kickstarter and Airbnb are either established names in Sweden or on their way to becoming established. While the American time- and task-sharing giant TaskRabbit has not entered the Swedish market, local alternatives have arisen. On the whole, the Swedish market for various Sharing Economy goods and services is fragmented and less developed than elsewhere in Europe. The Swedish market has also taken on a unique character in other respects; for instance, a number of home- grown services in Sweden tend to justify sharing on the basis of sustainability, rather than cost-effectiveness or efficiency. In addition, existing private firms and large state institutions have become involved in the Sharing Economy, whether by forming part- nerships to drive an initiative, such as SpaceTime.se, or by running sharing initiatives that rival their own business model, such as Hertz running the ridesharing service Roadmate.se. As elsewhere, the principle guiding force in the Swedish context has been access over ownership. Many of the Swedish platforms that support Sharing Economy activities are run by non-profit organizations and are supported by networks of volunteers. Several sites were started by students who, due to their low budgets, must “do more with less”, e.g., Skjutsgruppen.se and hoffice.se. The few organizations that are profit based have low revenues and few employees and thus do not contribute significantly to economic growth in terms of taxable revenues and new jobs. No single firm, with the possible exceptions of FundedByMe and Trustbuddy, has truly captured the market. Instead, we find that a number of small Swedish firms and several international entrants are competing with each other for market share. This
  31. 31. 30  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 4  THE SHARING ECONOMY IN SWEDEN is both good and bad for the development of the Sharing Economy in Sweden. On the one hand, high levels of competition force competitor firms to fine-tune their offerings, which improves users’ experiences. On the other hand, there are limited network effects to be had when the users and providers of goods and services are spread across a number of platforms. The multiplicity of platforms means that the distribution of shared resources is not as efficient as it might be, which is likely to have implications for productivity. Tangible Assets The sharing of tangible assets is the most well-developed area of the Sharing Economy in Sweden, with a number of local and international actors participating in this area. Sharing Cars One study has shown that the average Swedish car is parked 23 out of 24 hours each day and that, during the typical 12,000 kilometers driven annually by Swedish citi- zens, the average occupancy per car is 1.5 people.24 One study in Umeå found that on average, each car travelling in the Umeå region carries 1.2 people while one calcula- tion suggests that if a person who commutes 50 km each day were to carpool, he or she would save up to SEK 40,000 a year. These savings might even be greater today given the tax-deductible travel allowance of SEK 10,000 per year.25 There is a long list of ridesharing sites in Sweden,26 the most well-known of which are Bilplats.se (founded in 2007), Skjutsgruppen.nu (2007), and Samåkning.se. In addition, there are a number of local ridesharing systems, such as mobilsamakning. se, which operates in at least 10 regions in Sweden,27 as well as locally organized Facebook groups, such as En Ropsten, which caters to individuals living on the island of Tranholmen in the Stockholm region. The non-profit Skjutsgruppen.nu was founded by student Mattias Jägerskog and initially used crowdfunding to grow. Today, the group has over 40,000 users who rideshare all over Sweden. Users self-organize in terms of arranging trips and fees. Most trips occur on Fridays and Sundays, either within the larger cities or between cities: Stockholm to Gothenburg, Gothenburg to Stockholm, Stockholm to Malmö, Malmö to Stockholm, Gothenburg to Malmö, Uppsala to Gothenburg and Stockholm to Jonkoping. Data provided by Skjutsgruppen indicate that the longest journey in 2013 went from Malmö to Arvidsjaur and that the total distance of all trips made through Skjutsgruppen in 2013 was 306,475 km, enough to circle the earth seven times.28 The group is managed by a group of 50-100 people who volunteer in various 24. http://www.svd.se/naringsliv/digitalt/uber-satsar-pa-betald-samakning_3871646.svd 25. Åk tillsammans - spara 40,000 om året, LAND 2015-01-02 26. http://www.gronabilister.se/lankar/att-samaka 27. http://www.mynewsdesk.com/se/pressreleases/mobilsamaakning-utsaags-till-aarets- landsbygdsinnovation-702509 28. 40,000 samåker för att spara pengar och miljö, DAGENSETC 2014-03-21
  32. 32. ENTREPRENÖRSKAPSFORUM  31 contexts.29 Today, the organization cooperates with local governments (länsstyrel- ser) in Västernorrland and Örebro and with organizations such as Be Green Umeå. Furthermore, the organization created Carpool Europe in 2010 as an international branch for travel in Europe. There is now a Skjutsgruppen app and the group has an open API. Although cars remain the most common mode of transportation on Skjutsgruppen, the site can also be used for other vehicles, such as boats and buses. In addition, there are a number of national and local car-sharing organizations and activities in Sweden,30 the oldest of which is Sambil, a non-profit organization now in its 36th year that operates in a growing number of cities, including, as of May 2014, Västerås, Gothenburg, Norrtälje and Sala. Members lend their cars to one another and the association facilitates agreements between members. There are also coope- ratives such as Bilcoop, which operates in Stockholm, Uppsala, Lund, Gothenburg and Oslo. Bilcoop facilitates and manages bookings and provides administrative and other services. For-profit car-sharing organizations include Car2Go, Bilpoolen.nu, SunFleet, and City Car Club (previously Statoil Bilpool). Membership in these organizations gene- rally involves a membership fee, service, parking, and the option to pay by the hour. SunFleet was founded at the end of the 1990s as a cooperative venture between Volvo and Hertz. SunFleet uses only green vehicles and, according to its website, it operates Sweden’s largest carpool fleet, with more than 1,000 cars in 40 cities across Sweden. Members can choose between two membership plans and then pay for cars based on time and kilometers driven, for example, SEK 35/hour and SEK 2/kilometer for the smallest car. Bookings are made online and the car is unlocked using a mobile app. SunFleet has been active in creating partnerships and today participates in 11 partnerships with firms including Airbnb and mathem.se. Flexi Drive, another for-profit car sharing firm, was bought by Schibsted Tillväxtmedier in 2013 and employs two people. Its slogan is ”Rent a neighbor’s car”, anditsplatformisusedtorentcars,motorhomes,andcaravansamongpeers.Bookings are made on the site by the drivers and owners, who enroll through Facebook or the Flexi Drive site, and the transaction is completed between the individuals, who then rate each other. The firm takes a 10-20 percent commission, depending on the vehicle, and the price includes full insurance on the car. The firm has experienced slow growth, with earnings of SEK 69,000 and SEK 100,000 in in 2012 and 2013.31 Uber offers several products in Stockholm and Gothenburg that are differentiated in terms of car quality and price, including UberLux (luxury, higher-end cars such as new Mercedes and BMWs), UberBlack (standard higher-end cars), UberX (smaller lower- end cars) and UberPop (any type of car). In addition, the company added UberBoat (for the sharing of boat rides) in the summer of 2014. UberPop, which was launched in September 2014, allows anyone who owns a car to drive for Uber and, according to 29. http://na.se/ekonomi/1.2127952-han-tror-pa-delandets-ekonomi-i-vardagen 30. http://www.gronabilister.se/lankar/att-dela-bil-bilpooler 31. http://internetworld.idg.se/2.1006/1.552830/nasta-steg-for-flexidrive
  33. 33. 32  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 4  THE SHARING ECONOMY IN SWEDEN Uber, is 60 percent less expensive than taking a taxi. This works in a manner similar to the ridesharing alternatives described above, except that the logistics and payments are arranged by Uber on its platform. Furthermore, Uber has established certain requirements for drivers and vehicles; for example, drivers must be 21 years old, have had a driver’s license for more than three years, and undergo a background check. In addition, Uber conducts interviews and trains the drivers. The car must be a 2005 or later model, have four doors, and have passed inspections by both Swedish authorities and Uber. Uber also requires that its drivers have full liability insurance.32 In September 2014, students at the Stockholm School of Economics compared the prices of an average 15 min, 10 km trip in Stockholm and Gothenburg between Uber’s offerings and traditional taxi services (Table 2) and found that UberX services were cheaper. TABLE 2. Comparison of taxi services The students also compared the cost of Uber’s cheapest service, UberPop, to the cost of public transportation in Stockholm (SEK 36 per trip) and in Gothenburg (SEK 25 per trip). They found that for one passenger, public transportation was less expensive than UberPop, but if the ride included four passengers, then UberPop’s prices were competitive with public transportation.33 Uber-Pop still exists in Sweden but has been outlawed in Spain, Germany, France, the Netherlands and Brussels. Sharing Rooms and Land The sharing of parking spaces through sites such as JustPark,34 where individuals can rent out their parking spaces, is growing across the globe. In Stockholm, certain spaces 32. http://www.svd.se/naringsliv/digitalt/uber-satsar-pa-betald-samakning_3871646.svd 33. UberPOP: Marketing Plan: Launching UberPOP in Stockholm & Gothenburg, SSE Managing Marketing Processes: A.B., Luksep, A. Jin, C. Källstrand, C. Can Orhan, N.Wesley-James, R. Dee. 34. https://www.justpark.com/ Taxi company Start price Time price Km price Total fee (10km, 15min) Taxi Gothenburg 45kr 8.30 kr/min 12.71kr/km 297kr Taxi 020 39kr 7.60/min 9.60/km 249kr Taxi Stockholm 45kr 7.40/min 9.20kr/km 248kr Taxi Kurir 42kr 7.20kr/min 9.10kr/km 242kr Uber X 40kr 5.65kr/min 7.45kr/km 199kr
  34. 34. ENTREPRENÖRSKAPSFORUM  33 are available for just SEK 10 an hour. Parking garages are also exploring how they can facilitate the rental of parking spaces by their monthly owners. Although it is not a sha- ring service, Garage Koll provides information from parking firms, municipalities and property owners about vacant monthly garage spots throughout Sweden. Another Swedish startup that provides a similar service is Apparkingspot.com. The number of co-working spaces, or “third spaces”, in Sweden is also increasing. Stockholm hosts Impact Hub Stockholm, United Spaces, SUP46, Epicenter, The Castle, and Entreprenörskyrkan. United Spaces charges a membership fee, and the price of the space depends on the desired access, in terms of visits and facilities. Although many of these co-working spaces are privately owned and run, public spaces have become increasingly important. For instance, a project supported by Vinnova called Allmänna kontoret established a co-working space prototype in the Hässelby Gård public library located south of Stockholm. One of the more interesting concepts is Hoffice, a portmanteau of home and office, which was launched in 2013 and has expanded to multiple locations across the globe after several articles in the international press, including Fast Company (Figure 6). Hoffice’s concept is based on a group of freelancers who rotate the hosting of an “office” at their homes for free. However, Hoffice differs from many other similar orga- nizations in that members follow a structured work approach that is based on research showing that people cannot concentrate for more than 40 minutes at a time. People start work with a check-in and state what they want to accomplish during the day. They then work in 45-minute shifts followed by short breaks to exercise or meditate, which is followed by a brief check-in of their progress.35 FIGURE 6. Hoffices across the globe 35. http://www.fastcoexist.com/3041322/hoffice-turns-your-apartment-into-a-free-and-incredibly- productive-coworking-space#1
  35. 35. 34  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 4  THE SHARING ECONOMY IN SWEDEN A Swedish competitor in this area is Workaroundtown, which is a platform for firms to hire out their extra space, whether it be an office or an unused meeting room. The travel and housing sector of the Sharing Economy has also seen modest growth as Swedes use international platforms, such as Airbnb, as well as more local swap- ping alternatives. As of April 2015, there were 1008 properties across Sweden listed on Airbnb at an average daily rate of SEK 960. Daily rates ranged from SEK 88 for a couch in someone’s living room in Stockholm to SEK 10,500 for a small one-bedroom apartment in the Old Town. Monthly rentals are also listed, including apartments in central Stockholm available for SEK 20,000 per month. There are also several house exchange platforms that operate both in Sweden and abroad. On Hembyte.nu (homeexchange.com), a global platform spanning 150 countries,36 there are 992 Swedish homes listed. Intervac-homeexchange.com has houses in 50 countries, including 340 houses in Sweden. Bostadsbyte.com (homelink. com) has approximately 100 sites in Sweden and offers exchange opportunities in more than 80 countries. Other sites include semesterbyte.com and fritiden.se, as well as a site on Blocket. Sharing Small Consumables There are no real global players that facilitate the sharing of small consumables. Our suspicion is that the local nature of small consumables means that there is little upside for a large global company to operate in this area. Several local initiatives and Swedish platforms exist, such as Delbar, Grannsaker, Swinga Bazaar, and Tjikko, but there does not appear to be one well-established national player. The platform off2off primarily targets public sector organizations and recently established a partnership with Ragn- Sells (one of the companies active in the Circular Economy 10037 ), whereas a library in Malmö, Garaget, lends out small goods such as tools, sewing machines, and board games. Another interesting example is Fritidsbanken, which lends out sporting goods at no cost to children and youth to encourage them to be active while considering the environment. Clothing Clothing is another area where there has been considerable activity, but few initiati- ves seem to be sustainable. Sites such as kladbytardag.nu and kladbytardagar.se list clothes-swapping events throughout Sweden. The site kladbyte.se lists approximately 14,000 items. In addition, a variety of stores are experimenting with new business models. For example, Swopshop has approximately 800 members and utilizes dif- ferent prices for its garments, including cash and “green hearts”, which members receive for donating clothing. 36. 26 tips! RES & BO GRATIS och mer - bil, upplevelser, nöjen , EXPRESSEN - SÖNDAG 2014-06-29 37. http://www.ellenmacarthurfoundation.org/business/ce10
  36. 36. ENTREPRENÖRSKAPSFORUM  35 Malmö had a klädoteket where one could borrow clothes for free, but it closed in March 2015 after four years of operation.38 Gothenburg’s site has also closed. Lånegarderoben39 is similar to klädoteket, but has not yet opened any sites. Local initiatives, such as Wear Wise, are considering textile recycling. In particular, Wear Wise is exploring how to create networks to recycle clothing. Its project Retextile stemmed from a previous project, Studio Redesign of Borås, and aims to enable the recycling of textiles in larger volumes. Established brands are also becoming interested in the Sharing Economy. For example, in February 2015, Filippa K launched the concepts “Lease” and “Collect” as part of the firm’s sustainability program. The “Lease” concept enables customers to rent clothing items from the current collections, such as suits, dresses and acces- sories, primarily for special occasions. With “Collect”, customers receive a 15 percent discount when buying new clothes if they return their old clothes in fair condition, that are then offered either for resale at Filippa K’s second-hand store in Stockholm or for donation to Stadsmissionen.40 In the US, sites such as Vinted and Poshmark41 have grown quite rapidly. These sites enable people to borrow clothes directly from each other without having to go through a store. Poshmark has even started to authenticate luxury goods. However, it does not appear that a site of this type has made it to Sweden. Instead, teenagers in Sweden have started their own Facebook groups for swapping, sharing, and selling clothing. This spring, Uber organized a spring cleaning campaign in which individuals could arrange for an Uber car at no cost to collect used clothing for donation to Stadsmissionen in Gothenburg and Sweden. Tools A drill is often used as an example of what can be shared in the Sharing Economy. However, a search revealed very few services of this type in Sweden. In Malmö, ToolPool allows individuals to borrow tools for free. In Kiruna, this sharing can occur through a tenant union (Hyresgästföreningen) if one is a member. Used Goods It is no surprise that there are numerous sites for swapping, donating, and selling used goods. Blocket is one of the largest sites for sales and exchanges; this site combines peer and business advertisements and allows individuals and firms to advertise a wide range of items: from houses to puppies to second hand clothes. Sites offering goods for free include bjussa.se, bort.nu, bortskankes.se, and syndattkasta.se. In addition, 38. http://kladoteket.se/ 39. http://www.lanegarderoben.se/ 40. http://makeitlast.se/2015/02/18/filippa-k-launches-three-sustainability-concepts/ 41. http://techcrunch.com/2014/12/04/poshmark-hits-100m-in-annual-revenue-for-its-fashion-resell-biz- begins-luxury-goods-authentication/
  37. 37. 36  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 4  THE SHARING ECONOMY IN SWEDEN there are several local community Facebook groups through which community mem- bers borrow, swap, donate, and sell just about anything. Bikes Bike sharing is a major global trend and is often launched as a government initiative to highlight the importance of sustainability. Several local actors exist in Sweden, such as LundahojinLundandStyr&StällinGothenburg.InStockholm,Citybikesisacollabora- tion between the city of Stockholm and Clear Channel that launched in 2006. Citybikes enables people to share bikes through its system, and there is some discussion about integrating this program with SL, the public transportation system. Individuals can buy a season pass for SEK 250 or a 3-day pass for SEK 165, which allows them to borrow a bike for up to three hours at a time from one of 140 spots in Stockholm. Intangible Assets Sharing Money Sweden leads the way in the area of finance and particularly in crowdfunding and has a number of Swedish and international actors. FundedByMe, a Swedish firm, is a one-stop shop that offers all four crowdfunding services: donation, reward, equity, and lending. Founded in Sweden in 2011, FundedByMe now has 18 employees and is located in eight countries; locations are primarily in Europe but also include Singapore. The firm charges 6 percent of the amount raised for donations and rewards. More than 51,000 individuals have registered as members and have pled- ged more than SEK 60 million. In 2013, the firm generated sales of SEK 2.2 million and a net turnover of SEK 8.3 million Another significant Swedish crowdfunding platform is Crowdculture, which uses the donation and reward model to help individuals in creative industries to raise funding. International players Kickstarter and Indiegogo are also active in both donation- and reward-based crowdfunding and Crowdcube in equity-based crowdfunding in Sweden. Peer-to-peer lending is the fastest growing sector in this area, and international players are becoming more interested in entering Sweden. For example, Finnish firm Fixura is launching a subsidiary in Sweden. However, Swedish platforms have a com- petitive edge over foreign players; ToBorrow, a peer-to-business lending platform, has been operating since 2014 and Trustbuddy, a peer-to-peer lending platform, has been operating since 2010 and has since expanded into other European markets. Sharing Time There are numerous services in Sweden that facilitate on-demand help, ranging from simple matchmaking sites such as Grannar.se to commercial platforms such as Helpling, Hinnerdu, TaskRunner, and Urbit. Helpling is a cleaning service app that connects cleaners to those looking for clea- ning services. The company has earned approximately EUR 540 million and aims to be
  38. 38. ENTREPRENÖRSKAPSFORUM  37 the leading global IT platform for cleaning services. Helpling currently has subsidiaries in Germany, France, Holland, Austria, Sweden, Italy, Spain, Brazil and Canada and has plans to expand into Australia, Singapore and the United Arab Emirates. The Swedish firm is based in Berlin, where Rocket Internet, one of the company’s investors, is based. TaskRunner is a Swedish platform launched in autumn 2014 that enables people to find other people who can help them with small tasks, such as assembling IKEA furni- ture, drilling holes, delivering roses or ironing shirts. According to TaskRunner’s CEO, the network comprises approximately 600 “runners”, many of whom are university students but which also includes other individuals with excess available time, whereas the task orderers are parents with young children or homeowners. TaskRunner has created a platform through which the orderer and runner reach an agreement on the price and task. The payment is deposited by the orderer to TaskRunner and is paid out when both parties have fulfilled their obligations. TaskRunner charges a commission of 15 percent and does not have any corporate tax (F-Skatt in Swedish) obligations. TaskRunner is comparable to the US site TaskRabbit, which currently has approxima- tely 30,000 “rabbits”. Urbit, a shared delivery service, charges a fixed price of SEK 129 per hour for delivery services in Stockholm and is just commencing operations. The “Urber” gets SEK 80 per hour and Urbit charges 5-15 percent of the basket value. Similar to TaskRunner, most Urbers are students, and 250 Urbers have already been certified. The firm has raised SEK 30 million in venture capital. A similar site is Hinnerdu.se, which was launched in 2010 and has three employees and a sister organization in Denmark. In addition to exchanging houses and performing short-term tasks, new work- to-pay solutions are being developed whereby people work while staying at others’ houses and therefore stay for free. One of these is wwoof.org, which is for farmers, and there are several people in Sweden offering their farms. In general, guests work for approximately six hours each day for six days a week and in return receive free meals and accommodations.42 Swedish eWork has approximately 4,700 professional freelance consultants in its network and is the largest such network in Sweden. These consultants work on pro- jects for firms of all sizes. In the first quarter of 2015, sales increased by 32 percent to SEK 1.5 billion, with rolling one-year sales of SEK 5 billion.43 Individuals are responsible for handling their own taxes and administrative activities. Freelance Finans started in 1999 and provides invoice and administrative services to individuals who are self-employed but who do not yet have their own firms. The organization has 11,000 members, many of whom work in journalism, graphic design, or film.44 The CEO of Freelance Finans is also the chairman of the Freelance trade union. 42. Upplev utan pengar , TIDNINGEN ÅNGERMANLAND 2014-12-23 43. http://mb.cision.com/Main/302/9760499/370125.pdf 44. https://www.frilansfinans.se/about
  39. 39. 38  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 4  THE SHARING ECONOMY IN SWEDEN Vint was founded in 2013 in Stockholm and is a niche platform that matches professio- nal instructors and local athletes with individuals looking for personal trainers. In 2014, Vint raised USD 1.8 million in seed funding and opened operations in San Francisco. In August 2014, the firm employed eight people in Stockholm and four in San Francisco.45 45. http://techcrunch.com/2014/08/13/vint-sf/
  40. 40. ENTREPRENÖRSKAPSFORUM  39 Chapter 5 REGULATORY CONSIDERATIONS The Sharing Economy has already been confronted by a number of regulatory issues, from legal challenges, such as the challenge to Uber’s definition of “independent cont- ractor”, to regulatory requirements, such as the insurance and risk requirements rele- vant to Airbnb. Many areas of potential conflict are highlighted in the book Practicing Law in the Sharing Economy, by US attorney Janelle Orsi.46 The areas highlighted by Orsi concern legal standards in general but are particularly relevant in the context of the litigious and accusatorial legal system of the United States. Nonetheless, Orsi pro- vides interesting insight into the legal and regulatory impacts of the Sharing Economy. Below, we discuss several of the particularly relevant—but still unresolved—regulatory issues relevant to the Sharing Economy Employment Regulation Although numerous labor regulations exist to protect the rights of workers vis-a-vis their full-time employers, such regulations are often silent about the rights of freelan- cers. Thus, a digital platform does not guarantee an individual’s well-being in the same way that a “traditional” employer does, and individuals who provide their services through Sharing Economy transactions generally must bear a considerable amount of risk. For example, platforms such as Uber and Airbnb do not define themselves as employers in the transportation and hotel sectors, respectively. Rather, they argue that they are merely digital platforms that match drivers with clients and property owners with tourists. Hence, these companies are not responsible for the social benefits and insurance of the drivers and property owners. The shift to a more individualized labor 46. Orsi, Janelle (2014). Practicing Law in the Sharing Economy: Helping People Build Cooperatives, Social Enterprise, and Local Sustainable Economies (Kindle Locations 628-645). American Bar Association. Kindle Edition.
  41. 41. 40  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 5  REGULATORY CONSIDERATIONS market with a larger share of self-employed individuals of various skill levels requires a reformed labor market policy. Furthermore, individuals in the Sharing Economy often have no control over when and from whom they receive work assignments. In addition, as the number of labor platforms used by freelancers increases, freelancers may be affiliated with more than one platform, further complicating the situation. For example, taxi drivers might simultaneously participate in Uber and other platforms and/or might have traditional full-time employment but participate in Uber when they have free time. Because freelancers such as Uber’s drivers are not legally employees, they do not have the right to organize to obtain the collective bargaining privileges and protections that most labor unions have. Thus, although some people argue that the Sharing Economy offers flexibility and supplemental income not available from traditional jobs, others argue that it signals a return to the piecemeal labor system that exploited workers. Moving forward, traditional unions will not capture the entire labor force. Thus, labor market regulations must be adapted not only to ensure the traditional safety net for individuals but also to provide regulatory and tax incentives to incentivize self- employment. In the US, one such organization, the Freelancers Union, has emerged to serve the needs of this labor force. However, as explained above, the line between employee and freelancer is not always clear, and the Sharing Economy is increasingly generating more nuanced situations. For example, what happens if individuals barter or are paid in kind,rather than in money? Can residents of a community volunteer for a housing association in exchange for reduced rent? If so, what do they need to declare for tax purposes, given that they may not be employed by the association? For that matter, are they employed by the association? The ability of lawyers to advise Sharing Economy clients on how to structure their relationships and how to manage work assignments and compensation requires not only additional legal precedent but also clarification regarding the applicability of specific regulations to the various areas of cooperation. Regulation of Production and Commerce Because digitalization increases access to a variety of mass market and tailored goods and services at competitive prices, consumers tend to benefit from digitalization. However, as is the case for e-commerce, there are risks that must be addressed and new areas requiring regulation. Taxation. Taxation remains a significant and unresolved issue. Who is responsible for reporting the sale and paying the sales or income tax? Furthermore, what about exchanges in which money does not change hands, e.g., a farming cooperative where individuals receive produce from the farm in exchange for labor or an Uber-like exchange where the number of hours spent driving others can be exchanged for rides from other participants? Similarly, when new currencies are created, should they be
  42. 42. ENTREPRENÖRSKAPSFORUM  41 treated as goods, services, or currencies for the purposes of VAT? Such debates have already begun to emerge with regard to Bitcoin, a cryptocurrency.47 Safety. Some risks in the Sharing Economy relate to the fact that although an indi- vidual transacts directly peer-to-peer, he or she does not personally know the person on the other side of the transaction. For example, an individual who rents a room in an apartment is not guaranteed the regular safety standards of a traditional hotel room. Several platforms have developed screening mechanisms to help determine whether a person is trustworthy. Additionally, the consumer is in some sense protected by the “crowd” because users perform collective screening and third-party verification through, for example, comments (as in crowdfunding) and reviews (as on Airbnb or tripadvisor). Low ratings from the crowd will self-regulate the market. However, in regard to the sharing of durable goods, such as homes and cars, regulators have pushed back on several issues, typically in response to protests and lobbying. First, there is the issue of safety. Most countries have regulations to ensure that goods and services sold to the public meet some minimum level of safety. For example, hotels are legally required to have emergency exits and fire extinguishers, whereas private homes are not. Similarly, to drive a public taxi, a driver must often have a specialized or supplementary driver’s license that requires passage of some sort of screening test. However, what if a driver is given the wrong information about driving conditions, what if a very large amount of money is at stake or if a fire alarm is not installed in an apartment on the Airbnb platform? The regulations discussed above are by no means the only regulations that may come into play in the Sharing Economy. Regulations identified by Orsi as potentially applicable to the Sharing Economy include those relating to health and safety; food and agriculture; the licensing of childcare centers; public utilities; taxi services; and the hotel industry. However, such regulations typically apply only to purely commer- cial undertakings. Thus, there is some question whether these regulations also apply to non-commercial undertakings, cooperatives and reciprocal agreements. As Orsi observes, “The Sharing Economy is built on a very different set of relationships, which makes it tricky to determine which regulations may or may not apply.” The regulatory framework must be adapted in a manner that permits the appropriate application of regulations in the Sharing Economy, and policy makers involved in the effort to harmonize regulations for the digital and traditional economies should focus not on the technology used but on the activity conducted. IoT and Privacy. Looking ahead, both technology evangelists and consumer goods manufacturers have hailed the rise of the “Internet of Things” (IoT), wherein everyday devices contain tiny computers and are Internet-enabled, as a boon for the Sharing Economy. Things can be programmed not only to alert the user to certain events but also to communicate with each other and even to coordinate and make payments directly among themselves without human involvement. 47. http://www.coindesk.com/europe-inches-towards-decision-bitcoin-vat/
  43. 43. 42  THE SHARING ECONOMY – EMBRACING CHANGE WITH CAUTION CHAPTER 5  REGULATORY CONSIDERATIONS The name “Internet of Things” is somewhat inaccurate; a more accurate label might be “The Internet of Small Computers on Things”, which is another way of saying that the things themselves cannot be endowed with the capacity to connect to the Internet. Rather, manufacturers have started to install small computer processers on devices and these computers both connect to the Internet and control the device. This idea is not new, but advances in both computer hardware and Internet connectivity over the last decade, including increasingly smaller computer parts and an increasing number of processes being hosted in the cloud, have made it a realistic possibility (Fleisch 2010). Indeed, although the sharing phenomena that exist today rely on human-controlled mediators to control them as well as on human reviewers and screening procedures, a Sharing Economy built on IoT principles is unlikely to be subject to such restrictions. Rather, a pool of IoT resources may be self-run and self-guiding. Consequently, nume- rous regulatory issues are presented; for example, who is to blame if a self-run, self- shared car is in an accident? Other issues, such as cyber security and data integrity, will also come to the fore and demand regulation. Managing Intellectual Property and Ownership. A Sharing Economy is likely to include not only the sharing of goods and services but also the exchange of information. Such exchanges of information may also encompass collaboration and the creation of new ventures. Such collaboration, while not new, is likely to create new constellations and concerns regarding intellectual property. For instance, increased sharing in the creative and software industries led to the development of new licenses that established the terms of this sharing and collaboration. Ranging from the Creative Commons License to the GNU General Public License (GNU GPL), such licenses include standard terms relating to the sharing, re-use, private use and commercial use, among other issues. As sharing increases, the use of standardized licenses is likely to become more common. With regard to ownership, according to Orsi, “In a world where enterprises and housing will ideally be financed and owned by members of our local communities, securities law compliance will keep Sharing Economy lawyers busy.” This statement is equally applicable to Sweden. Indeed, questions regarding securities regulations have already arisen in the context of crowdfunding. Managing Risk. Orsi notes that the fear of liability and loss constrains both commercial and cooperative relationships. In the Sharing Economy, where the responsibility for risk and risk pooling shifts away from firms with established risk practices and skills and onto consumers who lack such practices and skills, what might happen? One immediate effect will be a shift in the relationship between individual consumers and established firms and institutions, including lawmakers. Indeed, consumer protection laws, which were designed to protect consumers at the expense of firms, cease to apply in the Sharing Economy. How should these risks be addressed as power shifts away from centralized institutions and toward broadly distributed networks of individuals and communities? Whereas risk sharing has traditionally been enshrined in contracts, the increasing pre- valence of sharing—of both goods and risk—is likely to lead to an increasing number of liability disputes. Addressing such disputes, and their increasing prevalence, is likely to necessitate both new expertise and increased capacity in the legal area.  
  44. 44. ENTREPRENÖRSKAPSFORUM  43 Chapter 6 MIXED ECONOMIC IMPLICATIONS Having reviewed the legal considerations implicit in the Sharing Economy, there are a significant number of economic implications as well. New Pricing Mechanisms Push Inflation Downward Current trends continue to push inflation downward. Also, due to the Sharing Economy and digitalization, newly emergent pricing mechanisms are appearing and some of them are not captured in the traditional macroeconomic models that are based on historical data. Also, the official statistics might not capture these new price mecha- nisms. Digital platforms and other technological advances are decreasing entry bar- riers and contributing to transparency, resulting in increased price competition. New entrants, so-called born globals and micromultinationals, are accessing the global market right from their inception, which means that previously protected local pro- viders now find themselves facing global competition. Traditional middlemen, which generate higher transaction costs and higher fixed costs of holding capital or labor, are being replaced by digital platforms. These enable more perfect matching of supply and demand as well as lower transaction costs. Since the digital platforms in the Sharing Economy have no fixed costs related to owning, they are able to offer a lower price. Thus, although demand is growing in the Swedish economy, companies are finding it difficult to increase their margins. Moreover, the CPI basket in the official statistics might be weighted incorrectly. According to estimates by Swedbank, 30 percent of the Swedish CPI basket is directly or indirectly affected by digitalization. Yet, the degree to which consumption of digital goods is fully captured in the official statistics is debatable. For example, there is a supply shock of software due to almost zero marginal costs (the costs of copying, dist- ributing and transporting digital services are close to zero), examples of which include

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